the means by which americans can achieve a secure retirement. some of which i have outlined here. we're confident the policy makers and the private sector can work together to address the challenges and fine solutions that guarantee that all americans can obtain a financially secure retirement. we are ready to assist in any way we can as we work toward this shared goal. thank you, again for providing the opportunity to testify and look forward to your questions. >> thank you, edward moslander for your good testimony. ..

as your salary grows investment in diversified access and own your plan and avoid taking out loans or cashing out when you take jobs. that said we know savings isn't always simple. i'd like to focus on three areas that help people increase their savings that can be improved to help americans reap the power of their benefits. the first one is in their shop.

the results of the protection act have been impressive more needs to be done to harness the power of automatic defaults. it's preventing plans to low. the harbor rule for the 401k plans starts at a 3% default rate starting at 6% rate would give workers a significant leg up on savings our data shows that 61% or more pursue all the allin rolled do not serve their default rate. the rates are virtually identical regardless of the 3% or the 6% starting point. let's give people the advantage of saving more and put the power of inertia to work for them. number two is maximizing savings through the automated programs. recognizing and inertia and the need to save there are programs for the future of the to protection act that increase the contribution levels. the annual increase programs are the primary way workers are increasing their contributions. our data shows that close to

one-third of all contribution increases last year were attributed to an increase program. unfortunately they are underutilized only 11% of employers are offering them. it may feel a bit onerous but when aligned with an annual salary increase, these programs can increase savings while minimizing the impact to take home pay. number three, and critically important as education and guidance. more than ever workers are responsible for saving and planning for their retirement. they need help understanding a range of financial topics from the most basic information about how to enroll and how much they should save to the more complex topics such as proper asset allocation and in come planning. workers had received guidance take action and have better outcomes. our data shows that workers who engage in a retirement planning session as and nexium pulled either online or on the phone increase their deferral rates on

average by five to six percentage points. one thing that is constant in all of our research is that a majority of workers want and need help. workers also need a simple way to gauge their savings process. last fall fidelity released new research on age based savings guidelines. these guidelines serve as a framework for establishing the retirement savings goals as workers progress through their careers, their salary, time a factor of x can be one of the measures used to assess the retirement savings progress. we found that a simple to understand savings target is a framework that resonates with workers and employers and we believe this approach would be helpful for people who switch jobs frequently and who may have a number of retirement accounts making it even more difficult to evaluate one saving strategy. in closing, there is a path to retirement security for most americans. the road is and always an easy

one. many constituencies have a role for insuring success. first, workers need to take an active role in saving and managing for their financial future. employers need more flexibility and the rules and regulation to design benefit plans which meet the diverse needs of their work force without the fiduciary liability and increased coverage cost. third service providers like fidelity need to continue to innovate around how to help plan sponsors optimize their benefit programs and service participants based on their needs. last, we ask policy makers to consider a variety of ideas to improve the retirement savings outcomes. examples include the deferral rate in spending plans to the ogle features promoting the availability of education and guidance modernizing and simplifying the regulatory framework to allow more innovation, exploring new ways to help and said the workers to save for their retirement and

partnering with other organizations to help ensure that all students have access to quality financial literacy. fidelity is committed to performing with you mr. chairman and ranking member alexander and members of your committee to help resolve these issues. i sincerely thank you for the opportunity to be here today and to share our perspective and experience helping americans save for retirement and i look forward to your question. >> thank you very much. >> good morning chairman, senator alexander and the other distinguished members of the committee i appreciate the opportunity to be here to discuss the retirement savings by american workers and to ensure the committee members recognize the significant retirement risks that we face and the millions of women on the cusp of retirement.

for 17 years we have been trying to help women educators and policymakers understand the important issues surrounding women's retirement income. our primary mission is financial litigation and capability providing women with the crucial skills and information they need to avoid the poverty and retirement. in the united states administration on aging also operates the national education and resource center on women and retirement planning. we commend the committee for examining adequacy of retirement savings because this comes at a time when 61% of americans age 44 to 75 are running out of retirement assets more than they fear death. women are among the most worried about saving and their financial security and retirement and rightly so. they live longer, the have less retirement income, divorced and widows have negative consequences for their financial well-being. current discussions about tax

reform would lead us to expect the policy makers would use the process for the opportunity to strengthen their retirement system and improve its effectiveness. we believe that much can be accomplished by strengthening and building on our existing retirement programs such as social security, employer sponsored plans, financially innovative products incentives for longer work and increased financial education and planning there is new research showing american workers are not saving enough. even at research institutes retirement security projection model for 2012 shows 44% of baby boomers and generation x won't have enough retirement income to cover basic retirement expenses and uninsured health costs. the shortfall the average savings deficit for a single female is little over $133,000.

that's the additional amount a single female would on average need to save by age 65 to eliminate the shortfall. the recent economic crisis has made it even more difficult. the low contribution rates and the lack of understanding of the need for the comprehensive retirement strategy means inadequate income for the rest of your life. these issues are compounded in addition to living longer older women are likely to have costly chronic medical conditions and need longer-term institutional care. further women are likely to be single at some point in their lives which puts them at a high risk for poverty and it is an irony of the latest stage of life many women become poor for the first time in their life. today the rate of harmony for women 65 and over is close to 11%. in my testimony i have a lot more numbers but what i would like to point out is of those numbers once you get to single

women almost a third and for the hispanic women it is 44% which is just the enormous. another twist is that women also work fewer years because they are the family care primary givers and caregiving cannot financial consequences. they've lost of $304,000 in wages of social security and private pension losses and another problem is older women taking and their grown children and grandchildren almost 20% of the grandparents responsible for grandchildren who live with them. in the workplace there is better news but it's very by ethnicity and racial groups to work for an employer with the plan while latinos were the least likely. however, the gender gap is continuing factor in another report suggests that while women in the aggregate have been closing of the retirement

participation read over the last decade the slipped a little because of the recession. the reality of today's retirement landscape as already mentioned is do-it-yourself, do it right or live at or below the poverty for the rest of your life. the nature of today's system of individual responsibility demands financial capability. we need to help people with these issues and a lot of the suggestions that are made are helpful for people if you work in the large company but those in smaller companies like the one that you are talking about, senator alexander, people just don't have that level of education and literacy. women along with their male counterparts tend to lack basic financial knowledge and it's often the reason they make serious financial mistakes. when needed the best information an opportunity to access the formation to ensure that they do not make these mistakes.

experience and research shows the relevant financial information from the trust of resources to dramatically increase your total net worth by nearly a third for those even at the lowest income and even to be cut to 18% for those with moderate income. the national research center that we operate with you and the administration on aging provides programs and communities and the interventions leverage strategic partnerships bought only with other nonprofit organizations but business, federal agencies and financial services groups. so, first of all, before i get into a long list which is in my testimony, and i won't read that to you at this .1 of the most important things that we think needs to be done is supporting increased economic and financial security for women of all ages would be to strengthen the social security system and we are happy to see that the white

paper the chairman has issued has a plan to strengthen social security. the one that has been talked about for 20 years to help caregivers by including a provision in social security for caregiving credit so there are many programs around that held at risk populations. what we need to do is start working with these models that we know work and promote them on a larger scale. they help you avoid dependence on government programs and in conclusion i would like to say thank you for letting me hammer home to risk for women in retirement and i but like to say finally there is no single solution. i've been hearing devotee wait until we get the perfect plan. there is no perfect plan. we already know where the problems are, what the challenges are. we need to target the segments of the population.

there's a range of solutions and most of all we need to continue to build on what was working and make it better and there are a lot of americans out there that are trying to achieve basic financial stability. thank you. >> thank you. i wish to share my thoughts on how we can strength america's retirement savings systems. i am a professor of public policy at harvard university's john f. kennedy school of government for the types of policy intervention and plan design features that can improve savings out comes to it is much concern in both academic and policy circles about whether our current private defined contribution savings system can adequately meet this retirement income needs of individuals. the current system has several shortcomings there are several steps, sensible steps that can be taken to improve outcomes for

individuals without substantially increasing the cost worked risks to employers. my early research on automatic enrollment documented how small changes in the plan design can have a large impact on savings out comes to read this research provided the impetus for the corporate pension act of 2006 encourages and lawyers to adopt automatic enrollment as part of their savings plan. there are many other measures that can further strengthened the private defined contribution savings system in the u.s.. and my remarks i will highlight the shortcomings of the current system and suggest potential avenues for change. the first shortcoming of the system is the participation. less than half of the private sector workers participate in an employer sponsored retirement plan. more participation is a particular problem for employees and small firms many of which do not even offer the savings plan. policy initiatives that encourage and facilitate the

automatic savings and employees of small firms are a key step to improving outcomes in the defined contribution retirement system. to such proposals are the widely and was automatic eye are a and the u.s. senate health committee usa retirement funds. both would create a simple and a low-cost mechanism for small employers to make contributions to the retirement savings accounts for there in peace to the payroll deduction. the second shortcoming in the current system is that those workers that do participate in the defined contribution retirement savings plan to often have contribution rates or too low. savings plans need to be structured to encourage higher participant contributions. let me suggest three easy ways to do so one change the structure of the match and a typical savings plan is 50% come up to 6% of pay. such a match costs the employer 3% of pay or the employees contribute 6% or more to the plan and gives employees an incentive to say 6 percent of pay. consider instead a match of 30%

to 10% of pay. does it cost to employers 3% of pay for every employee contributing at or above 10% to the plan but this match gives employees a financial incentive to save at least 10% of pay but no increased cost to the employer. member to encourage the employers to adopt a higher default contribution rate under the automatic enrollment. the widespread adoption of automatic enrollment following the pension protection act of 2006 has been for public policy that effectively cut typical rate is 3 percent the rate that falls short of what most need to save up for the retirement. yet we know from extensive research many employees will persist that the default. the solution is easy. a higher default contribution rate. one concern is that it will encourage more employees to opt out of the savings plan participation altogether. in my own research found that few employees have higher automatic enrollment de at least to that level.

murphree more aggressive automatic contribution escalation. even though the pension protection act automatic contribution increase based line calls for a 1% increase in contribution rates each year there is no reason employers couldn't escalate the employee for eight more quickly say 2 percent or 3% a year. research shows the employees of out of the contribution escalation even with more aggressive annual increases. these three approaches to increase in the employee contributions are not mutually exclusive and indeed a combination of these approaches can be particularly powerful. a third shortcoming of the current system is leakage many individuals take money out of their account before retirement for other purposes. this is a serious problem and one that has been largely under the radar screen. recent studies by the gao, the employees of the federal reserve and the irs and by the private company for the retirement savings system most

significantly due to the pre-retirement pass distribution after they change jobs. moreover the survey results from the fidelity investments in boston research group found that 55% of employees have taken the retirement distribution from the defined contribution savings plan later regret having done so. the reality is the defined contribution savings rate are not used solely to fund retirement. they serve as an all-purpose savings vehicle because of this the recommended contribution rate to these accounts should reflect not only what is needed to successfully from retirement but what will in all likelihood be withdrawn from the plan before the retirement as well. this suggests policy should either encourage the contribution rates that are above those needed to fund retirement or policy should limit the extent to which individuals can take the retirement distribution from these accounts. a final short coming is most employers' savings plans to offer employees an easy way to

transform their retirement wealth into retirement in come through and in utilization option to read of the retirees want the income stream above and beyond social security, they are left to contend with the private market on their own trials to evaluate a product with which they have little experience and whose purchase will consume a substantial of their wealth. the result is the and utilization rates are very low. and employers provide several services when it comes to the investment option in their savings plan. they evaluate the available alternatives and a few options that are suited to their employees' needs and the year able to offer employees lower cost investment options than the employees would have access to the end of the economies of scale. having them perform the same function for the retirement income options would be valuable service to many current and former employees that and a full-year is currently have little incentive to do so. our defined contribution retirement system isn't perfect

but there are several things we can do to make it substantively of better in conclusion first we can increase coverage by creating an easy and low-cost mechanism for the small employers to use so that employees of these firms can benefit for the ease of payroll deduction to fund their retirement savings account. second, we can encourage them to structure their savings plan in ways that promote the employee contribution rate. third can let the leakage from their retirement savings plan and forth to encourage the adoption of the plan annuity options. thank you. >> thank you. i will start a round of five minute questions. i want you to know we are looking at the leakage problem and this is something i've become more and more aware of and hopefully this committee will be looking at this shortly. on the leakage issue. let me ask you in this plan that we've rolled out last year, the

retirement plan, the open issue is what the contribution rate should be. those that should be working in developing the plan have thought about it not as social security where it's a match between the employer and employee to put in a contribution, some very low threshold employer match and then allowing an employer to raise the match if they want to tells an employment incentive and so one employer might provide 1.5% in the mother might say you come to work for me we will deutsch 2.5%. so you can use that as an employment incentive for employers. but have you ever thought about if we move ahead in this area what should the contribution rate be when the redefault

people and to the plan? >> that is an excellent question and i would encourage the committee to think not in terms of a single default contribution rate but perhaps differentiate alternative, so when a senator alexandre was talking about the small restaurant chain my guess is a lot of the employ years working at companies like that are younger, teenagers, it's their first job, and for them a lower contribution rate might make sense to read 3% of taken a 5% of pay whereas if you are looking at someone who is a bit older and this is their full-time job and they are going to be working there for a while, the appropriate stifel contribution rates might be substantially higher. we know from investor psychology that individuals not to think about saving think in terms of the round numbers to multiples of five, 5% of page, 15% of pay those are benchmarks individuals

can easily get their hands around so it might be worth thinking about something lower, 5% for younger workers and something higher may be 10% for older workers. >> i understand but keep in mind we are trying to make this as simple as possible. >> i am a big fan of simplicity. >> we hear the argument automatic enrollment doesn't really boost savings because people make up for the lost disposable income by reducing other forms of savings. have any of you looked at whether automatic to the automated can help other forms of savings? >> i've been trying to do a study that would answer this question and it's hard to get the data to do that well. the little evidence that we have suggests to the extent there is a crowd out is big. i have a former graduate student has done research on the savings

behavior members of the military and the thrift savings plan and he finds that financial education program that has substantially increased savings has had no adverse impact on the amount of credit the military members have outstanding so he's finding no crowd out there and there's a study by my colleagues looking at denmark where you can get more data concerned about privacy in when they look at automatic savings programs define the crowd on other parts of the balance sheet evert so i think it is a legitimate concern, but i think most of the evidence suggests that certainly it's not one off. >> any other thoughts on the crowd out? >> i would offer we don't have research in -- the complexity

what is happening outside of the plan is difficult. so what is important on the automatic enrollment is the significant impact it has in getting the participants into the plan. so our enrollment rate, participation rate across the customers is 67%. with automatic unlimited is 88% so it is a very powerful distinction that in and of itself is so dramatic it's hard for me to think it is creating the destruction of other savings vehicles. ischemic before my time is out quickly a lot of people don't have traditional 48 hour week jobs, caregivers. what we need to do to make sure people with nontraditional employment arrangements have access, easy access to the retirement plan? >> i think we need options and opportunities for people to save. a lot of part-time workers are not eligible for benefits and

it's been true i don't know that that is ever going to change but i don't think that requiring the employers to do that tax lawyers tell me all the ways you can fudge those fools, so we needed to work wherever people can save and we don't have that. >> again that is something that we are looking at in developing this fund to make it simple and easy so that there isn't a burden on employers for the part-time employees or employees that come in and out of the system all the time where the employee he wouldn't have a fiduciary responsibility or to operate a plant or something like that. any other advice you have on that please let us know. >> since the center has been working on this with you we would like to have the first

questions. thank you mr. chairman for working on this. it is important and i want to thank the panel for their tremendous suggestions. your testimony is just packed with ideas and that's led to a lot of questions or technical and i will attempt while doing my questions i appreciate the emphasis on the bottle and a moment versus perhaps the mandate and i appreciate the comments about the school's leading to do financial literacy. i've looked at a number of schools to see what they're doing and i'm very disturbed to when they provide them with the money they are going to learn to budget they leave out the fact that the social security and medicare were taken out and the possibility of any kind of savings they might add to that. so i am hoping that that will

change. have you done anything on the plans whether it would make a difference that the deferred amount was a 401k, would that make a difference in this autumn enrollment and contribution? >> the limited research i've done a regular versus the rauf savings accounts suggest people behave. similarly in both types of savings plans which suggests the roth option might lead to higher levels of wealth accumulation because the taxes have been taken out on the front end. but truthfully, we need much more research into that question. >> i would agree with that, senator peery is a very good question. we haven't done extensive research. we are seeing powerful results with both of the roth ira,

excuse me, the roth plan and the ability that provides for the plants coupled with the distinctive research at this point. >> i am hoping both stay in effect. one of the things i'm concerned about is the regulation that we have and the possibility for the liability when they are doing it. those are the two things they tell me keep them from going into this and i am an accountant. i used to do the accounting primarily for the 401k and to the fairness testing. they get more and are paying more. do you have any suggestions for ways the regulation can be made simpler perhaps for the particularly small businesses? i think that you were relating to some of that. >> certainly regulation is difficult for the employers to

deal with especially around the fiduciary responsibility. i think one of the more creative -- it could have unintended consequences lifting the fiduciary from the employer and putting it elsewhere. it might be d portability to read the fiduciary responsibility we could somehow he is that and simplify it for the employer i think it would go a long way toward simplifying the ability of employers to provide for the plan and then also simplify the portability by participants and rather than -- they might not cash out those benefits the way they do today it would be easier for those to be portable. >> anybody else on to comment on the regulation? >> simplification is key in every aspect of this

conversation from a regulatory perspective the smaller plants as you are pointing out the adoption is very often i've waited as a result of the regulatory requirement, so looking at the safe harbor and how to simplify those i'm looking at the fiduciary responsibilities and the disclosures are often onerous and drives costs for the employers which would cause them to step up and the complicity there's an opportunity. i think without walking away from the importance of the goal and looking to be achieved in the regulations. >> anybody else? >> i also have a bill that would allow the small pooling so they can have won a administrator for one of them and that's what allows the portability that improves the enhancement of this and the symmetry and i also have a bill that deals with some of the leakage problems so people

have an opportunity to put back in. >> i'm sure i don't need to tell you all of this but the chair of the committee through the pension act she is one of our experts on this whole issue to have him as a partner in this issue. we recognize this will be senator warren and then back to senator alexander and senator murphy, cementer isaacson, cementer baldwin, senator byrd, senator franken and casey in that order so you are recognized, senator warren. >> want to offer my thanks to the panel. thanks very much for the work you're doing in education and the commitment the companies have made to educate clients and

the work you've done in research. it seems to me -- i've read your testimony and i agree with the senator enzi is full of good ideas and it's primarily based on how we might do better with employer sponsored plans i went through the notion of changing the opt out increasing the pre-commitment growth and the very creative plan changing how the employer calculates the incentive to get people to stay in. to one extent or another you talk about incentivizing the employers or encouraging the employers. i know the different firms that we use, and unlined full of senator alexander's point that on the one hand we could require the employers to participate,

senator alexander says this creates complications for small businesses. can you fill in that part that you're talking about in your testimony? we don't have a employees that are participating the plans and employers that are offering the plans. how to get the employers to offer these plans, what are the options available and how effective will they be. would you like to start? i think it comes down to the discussion we had not simplification because the model employers one of the biggest interpreters in the cost and the fiduciary responsibility complexity that goes along with administering the plants so if we can streamline some of the requirements and accountability of them i think that we would have naturally better of options and then when you get into the actual experience there are ways to offer plans that reduce the administrative cost as well.

>> let me completely agree with that. i think their needs to be a very simple option for employers that needs to have no regulatory requirements, very little regulatory requirements, limited fiduciary responsibility. something simple and straightforward. then to the extent that you can piggyback that with something employers are doing so it does not add an administrative burden that would also help, for example, small employers are filing the tax payments on behalf of their employees quarterly, a couple the contributions to the savings plan with what they are already doing to be their quarterly taxes, and that is instituting a new regulatory requirement that they need to do this contradiction in some other way, shape or form and some other

point in time, anything to minimize the administrative burden and the regulatory burden would be extremely helpful you can also think about providing modest tax incentives to companies if they offer savings plan to read it will give you a break on your employer taxes. out of the pension protection act there's additional auditing requirements which are very good things the disclosure that the planned sponsor level was a valuable that the participant level what was the opposite of that and we all spend a lot of money and a lot of time in a lot of energy to mail out and send out the disclosure information to the participants who in the first place the minimal engagement in the plan they are not meant to be interested in

the expense ratio of every fund that is offered under the plan so that is the kind of regulation that is well intended but in the end really didn't have the impact that it's designed to have. so, trying to manage the necessary regulation with the regulation that isn't going to be a big impact just echoing what they said is important. >> is it going to get us there by making it plain and simple? >> senator warren's line of questioning because i think it is a very helpful. i remember to be the governor of tennessee i walked across the state many years ago and when i was out there with nobody to talk to they were along the

road. i was thinking that if i got elected what if i could make a tax reform or some sort of left for somebody to start a business and then for the state's point of view this is everything we care about. this is all the taxes on all the regulations, rules, complete list of them if you do all these things you don't have to worry about us, the state anymore. of course when i got into the office i was never able to do that. but still, simplicity i think is pretty big here. we have seen the law that was passed a few years ago taught us some things about the value of the default position in ogle enrollment and automatic escalation, and we know that financial literacy is not at a high level among many of us even if we spend a lot of time and

these things can get very confusing we don't want to take anyone's freedom away to make his or her own decision about this. but the automatic enrollment or automatic changes redefault positions that better reflect the reality of what an individual needs seems to be one promising further step we could take in using your advice about what that should be is one step, but i am intrigued by this form because that is what i'm thinking and i am wondering what happens if i invited you to write it for us and submit it to us. let's say that you are about to go into business and this is what you do, you study this stuff for 15 years you know what is going on better than we do. why don't you write for us a simple plan that we could put into law. i'm already paying my taxes and i've got the minimum wage.

why don't you do something about the retirement. i might not make any money this year. but it simple, if it is so simple i can do it and it's good for my employees and good to do. we don't have to do it for everybody in the whole country at once. we could take a simple point. so i would invite each of you to submit to me or to us the idea of free of anything that you can think of to get responsibility that would encourage enterprise to start or offer a voluntary plan that would promote to the savings level that are appropriate. if you were to do it would you do it for any business or would you do it for a small business

how would you define the enterprise that you would do such a thing for? anyone have a response? >> i'm going to go up to my class monday and give your challenge and then see what they can come up with. >> i'm quite -- >> they are likely to come up with excellent ideas. >> give them the idea saying what you are going into business and you have a lot of other things to do how would you do this. >> last year thus efp had some sort of a competition senator warren would know better the list the great thinkers in the society -- get the protection bureau would actually do that, it would double -- it would increase my appreciation of the agency which is not very high

right amount. but the mortgage disclosure for is a good example of what we are talking about. we don't want to do something bad to somebody. we all have good ideas, but the pilot and then when you are down here getting a loan anybody has a mortgage loan. rather than complain about the regulation let's start from scratch and say what can we do? what's follow-up senator warren's, or mine and that of others here it makes a big difference and i am sure that is true. >> thank you very much, senator alexander. now senator murphy. >> thank you mr. chairman.

what an important hearing. one of thought or one or two questions. to my mind the most important barrier to savings is of simplicity or regulation. it's stagnant wages. they made the wages more than they were in 1970. since 2005 all sorts of other costs are going out to health care went from 8% of your budget to 18% of your budget in the last four years and so it is tough to say even if you don't make anymore than you did ten or 20 years ago. and i know we are not going to talk about it in the context of a bill of pensions but it's worth noting that if this congress doesn't tackle the issue of stagnant wages there's not a lot we can do around the edges to make the money appear out of nowhere. that being said, younker generations today still think that they are living in their

parents' world. they still think if they go to work that they're just going to end up getting taken care of. they probably relied too much on social security but they just don't understand how much the obligation has now shifted to them. i was really glad that you brought up a lifetime disclosure act. this is a bill senator isaacson and senator bingaman supported and i am able to join you, senator in this session of reintroducing it, but i just wanted to ask you to follow on the legislation. this is to just sort of put right in front of workers especially younger workers with the true annuity benefit of their savings is and i will ask an advocate question about a buildup i support, but even if these forms are to come to you with lots of information already and a lot of workers don't pay much attention in the first

place, do we think the confidence is that adding another number which will be a pretty startling number, the amount of money you're actually going to get if you continue on your current savings trajectory, what kind of conference do we have that might actually change people's savings patterns? >> a couple things. i'm not sure that young people are has confident they are going to be, quote, taken care of. there is skepticism about the viability and what there will be in social security and the like for them by the time they get older and i think the research shows that younger people are a little bit more inclined to consider savings for retirement. for years we would send a the quarterly statement retirement av projection statement at the end of each year that projected their income, and it wasn't important that they looked at it every year it's important that

they got it every year and over time it was believed that the presenting them in the income figure created a mind set towards lifetime retirement income security we've seen a lot more on the education market than we see in the process making sector. part of it as the product is used in the marketplace but it's also we believe it presented thus and the employers have reinforce the fact the plan as for the retirement income and this is a reenforcing mechanism as a mind set issue more than an actual -- it does help people save more but also gets them in the motive thinking this isn't something to cash out it's something i receive income from. >> one additional question to build on this line of conversation around some paucity and it's incredibly important

and we have been talking about it with respect to simplicity as it relates to the employers and maybe i will direct this to the professor. what about the barriers to savings from the employee's perspective, the verbiage surrounding the retirement savings today and what do we know about the barriers presented to people that want to put money away when they are confronted with the sense of what multitude of words and phrases and vehicles that are available to them? >> the alphabet soup of the savings plans you should have come to my plus yesterday this is exactly what we talked about. i think the big challenge is not so much that people don't want to save, but they don't know how to do it and it is a combination of a lot of people don't have high levels of financial literacy. they are not, you know, they are not comfortable with choosing

harvard university up until a year and a half ago we had a 259 different investment options. that is a lot of choices to sort through if you are trying to decide how to invest your money and that is the key reason the automatic enrollment is so successful. automatic enrollment is the extreme form of simplification. you don't have to do anything if you want to be saving and in fact the action needs to be taken by individuals who don't want to save. they have to opt out of the plan and the fact that when the opt out happens it is immediate. it's not like people discovered that a year later my employee is taking money out of my paycheck. i don't want that to happen. i want to opt out. that, to me, but indicative of a strong desire for most people to save, and the simplification is the key. even in plants without automatic enrollment we thought if you provide a simplified option to sign up for the plan, think of a

postcard that has a box on it, check this box and we will enroll you in the savings plan. and we have taken investment allocation for you. even initiatives like that can substantially increase the savings plan purchase a patient. so i think the simplification is key for both the employee and the employer. >> senator alexandre i want to memorialize in front of everybody including those on television that i am delighted to accept you as the replacement for jeff bingaman as the lead co-sponsor. >> looking forward to it. i appreciate the plug very much and the comments regarding the drawdown phase because we are always talking about the accumulation phase in the beginning of the process, but taking the money out can leave people without any retirement while they are still alive devotee it's important that we focus on that education. ms. mccarthy i want to ask you

a question. i think you said in your testimony that those that seek guns have better outcomes, is that correct? >> absolutely correct. >> the department of labor the last two years, and i understand continuing this year is trying very much to change the definition of the term fiduciary. would you give me your position of that change takes place would affect the would have on people getting education in terms of retirement savings? >> yes. thank you for the opportunity to talk about it. i feared that would have a very dramatic effect on sponsors or partner vendors, record keepers of ability. we have a tremendous amount of research among the participants that we service to understand what drives their behavior and and rolling in the plan, not enrolling in the plan, and one of the key dynamics to get simplicity, the auto and roll has been dramatic. but simply not knowing what to do, and when we think a lot of

guidance. it's as simple as that. the prospect of not allowing the providers to help participants engaged in their planned [knocking] i would have a dramatic impact on this issue we are talking about today and it won't be advantageous. >> i appreciate your testimony because i feel the same way. i think education and transparency is invaluable of people making the right decision for themselves and every time we put a barrier between them getting the good information, we are causing bad things to happen. that is and the intent but that is the result and that brings me to the commentary particularly about women and divorce and things of that nature. i ran a company for 22 years where all of my seals people were independent contractors. i had a thousand, and almost all of them were second career women, divorced or women over 50-years-old that came back to

have a career in real estate after a life driven necessity. most of them hadn't saved or didn't have a husband that had saved or were not prepared for the retirement when it would come that might be ten to 15 years but because i used to the independent contractors as sales people in my organization, the prohibition against me providing any information or any help in savings made it impossible for me to help them which brings me to the point of the fiduciary and everything else. we probably need a one-page list of all the things we do appear better - to words people starting their retirement savings either in the tax code and the rules and regulations and with the department of labour might do. those are not the intended consequences but they are the consequences. i don't know if it is still true, the contractor test one of which you couldn't provide information vehicles or anything else. you could direct them but

somebody else had to be the administrator and the adviser. could you do that for us, the people you deal with in the trials and tribulations of having access to that would you give us a list of all those things that we require that are negative towards the formation of capital savings and retirement? >> [inaudible] >> i know that but you are very experienced with the type of people that we are talking about. >> [inaudible] -- sorry. i think what you're saying is you directed people toward some type of a retirement plan but he warned supposed to. >> i don't know. [laughter] >> you didn't know. >> i couldn't direct them to a plan i could advise then they ought to seek information but i couldn't give them of the direction or anything else i would tell them you ought to take care of this.

they would say can you help me and i can't to estimate that is often what helps people get retirement income because somebody will direct them to what they should be doing especially if they don't have the automatic enrollment. >> senator harkin made the statement about nontraditional, he called it nontraditional employees. with the affordable care act there are going to be more independent contractors as though workers in this country i think more part-time workers in this country and it's going to be more and more difficult for some of the provision in the long hours and regulation for them to get the right type of information. thank you if for your testimony. >> cementer baldwin. >> thank you. i want to thank the chairman and the ranking member for holding this important hearing and the witnesses from testifying. i'm deeply concerned about some of the statistics from my home state of wisconsin the number of

citizens that rely on social security as a source of income once they retire. the figures shared said just 28% who receive social security have reported that the benefit is their only income and two out of three age 65 or older reported social security makes up more than half of the monthly income so the figures and trends are certainly troubling. i also appreciate my colleague, senator murphy for talking about some of the issues that we are not troubling with today, stagnant wages, etc. as we look at the health of our middle class and i think about the hallmark of the middle class status and one of them in my mind is the retirement security and we are discussing the fact that is in jeopardy for some.

ms. hounsell, i appreciate your testimony. this is the week in which we submit the fourth anniversary of the signing of the lee ledbetter act -- lily ledbetter act. we hope that future legislation that we are working on will begin to decrease the gap that exists between men and women but until that happens, obviously it's clear women earn less and therefore that affects the keep of the of saving for retirement. a report by the joint economic committee released this week chaired by the colleague on the committee, senator casey states that for women over 65 years of age social security accounts for two-thirds their total income and also men over the age of 65 it is roughly 54%.

in your written testimony you reference the importance of the national education center on women and retirement planning and educating women on how to plan for retirement. it is a program funded by the administration on aging. one quick -- it is my understanding that if the sequestration proceeds, the administration would see a decrease in its discretionary budget of about $121 million in 2013 alone. i wonder if you can discuss generally the importance of the program and promoting their retirement savings and whether you believe or have heard the sequestration would have an impact on the initiative. >> yes, it will have an impact on all of the programs that are at the administration on aging and a lot of these programs are minimally funded but have such a

big reach. the way we've actually operated the center is to train the trainers all over the country and we have worked with the opportunities for women and a number of people in wisconsin, it can out with a report last week. i don't know if you saw that. what it does is it sort of shows what people over 65 need to live on in various states and cities and i don't recall wisconsin but i know that for single women it is anywhere from 19,000 to 29,000 that is minimal, rent, heat, all those things that are absolutely necessary. so everyone says we work with a lot of organizations and we would say well we need one on one especially for, like the latino groups and we need one on one for every one really that's

what everyone wants and you know that from your research as well. i think what is important is the senior centers and places where people can actually come for help have a great project on libraries and there are not that many of them i think there are 25 that they've found it. i've been to a number of them during programs with them. they are incredible so there are ways we can do this but there is no coordination reach nationally except for these little programs that the national council on aging does a great initiative as well. so why don't know what will happen after the sequestration. ..

>> that is an issue that i wonder about. not only do people change jobs, the company is exist for sometimes shorter times and what is the effect of that? what is the affect of people may be having 20 jobs in their career or 30 jobs in their career? going from one thing to another?

what happens when the place where you have your pension goes out of business? if anybody can speak to that. >> i can speak to that for a moment because it happened to me. so i have frozen benefit at the pbgc. i worked at a company for 16 years and it was frozen. that was at the pbgc. people are going to have to go together, many of these different benefits, wherever they go, they have to look for them. >> i imagine the pension benefit guaranty corporation is going to be a lot less than you had expected. >> yak, which goes in for 25 years, so it's a lot less. >> i think julie can talk to us about what happened. from the administration

standpoint, what i'd like to point out is the fact that people are changing jobs so often that it highlights the importance of getting contribution rates and to address the problems. because those are both issues that are really tried to job changing. if you think of a system where companies have automatic enrollment and enroll you in a contribution that escalates over time and you are changing jobs every year, you're always going to start at a low contribution rate and you never get up to a high enough rate truly satisfied money for retirement. so that is the key reason why we need a higher default contribution rate with automatic enrollment. we know that a lot of the weakness from the system is generated when people change jobs. and suddenly, they are presented with this option to leave the money in the plan, to roll it over were well, i can take the money out and do something with it today. that is when the leakage is occurring. we really need to think of ways

to discourage employers and employees from doing that. some of them may need money because they are unemployed, so we need the need to not take money out of the plan. >> okay, is that all for financial literacy? go ahead. >> it actually does affect financial literacy. everything that brigitte madrian insane. it comes back to literacy and education and compounding. there are a number of different studies out there that talk about how the next generation will be. it is very different than the environment we have grown up then. the ability to take the benefit and roll it together, when you start to think about retirement projections, you really have a comprehensive view of what you have accumulated and you

continue to build on that. we have studied participants age 20 to age 24 and 51% never engage in a plan at all. 4% of this population will cash out, i'm sorry, 24%. 33%, maybe they get to 4% from a cash them out, they will never accumulate a retirement. >> i would like to touch base on a couple of things. financial literacy, the pension committee and we need to have financial literacy education. i forgot who assigned you, was a senator and the aid reign i

would like to have your students work on a math curriculum uses all of the issues and the retirement to teach math also teach financial literacy at the same time. because we used to have shop and home back and pole is home economics. so there is a place for us to help kids understand the world they are going into. so they don't get in trouble with credit cards and they don't buy a house with a bad contract. so that it takes some of the pressure off of the pbgc. the other thing i just want to mention is annuities. you know, i was on the special

committee on aging and something that does shock me, in retrospect it wasn't that shocking. people actually, when asked how long they think they will live, they underestimated. so we need to get people into annuities and we need to do that so that they don't outlive their savings. >> thank you, senator franken. i like to thank the four witnesses. this has been very helpful. we would like to leave the record open for 10 days. senator harkin had to step out. so i'm going to conclude the hearing. but several of us may have follow-up questions that we would like to ask you. if you would be kind enough to respond to them, i think you can tell from the level of interest in your comments, we will surely pay close attention. you have gotten too big assignments here

[laughter] the legislation that passed in 2006 seems to have some good effects and we have gotten some good information i had about ways to meet senator harkin's goal, which is to narrow the gap between what americans are saving for retirement. for my own point of view, it seems to me that a good deal more work needs to be done on complexity, legal alleys and liabilities. this is a committee where we supposedly have very different ideological views. but i think you have heard some comments and suggestions here that rather than taking off regulations were taking off regulations, we might try a model that starts from scratch with the objective of making it easier for business enterprises and are changing country.

more americans are going to be independent contractors, not full-time employees. how do we make it easier for employers of any kind to offer savings and to do it in a way that closes the gap that senator harkin is speaking about. i suspect that you will be hearing from several of us with several questions. this hearing is adjourned. [inaudible conversations] >> here is look at our primetime

programs tonight. at 8:00 p.m. eastern, outgoing secretary of state hillary clinton gives farewell remarks at the state department. on c-span2, from the national black caucus of state legislators, a discussion about institutional racism. on c-span3, a look at the battle of extremists in mali. coming up next, looking at the economy. patrick reese gives the january jobs report. after that, the national school choice week and looking at international adoptions and why russia won't allow americans to adopt anymore. plus, your e-mails, phone calls,

and tweets. "washington journal" is live at 7:00 a.m. eastern on c-span. on tuesday, the american enterprise institute hosted a panel of scholars to preview president obama's upcoming state of the union address and how foreign policy and national security will be addressed in the president's second term. this is one hour and 20 minutes. >> good afternoon, folks. [inaudible conversations] >> good afternoon, folks. can i please get everybody to sit down and speak quietly? i think we are going to start here. good afternoon, everybody. i am danielle pletka.

i am from the american enterprise institute. welcome to our first an annual series of state of the union policy event. every year, aei scholars come together and answer questions that have been raised or are likely to come up. we try to look forward a little bit and think about what the right answers are to the questions that are being posed. it is one of the few events that we do with only aei scholars, although i am very happy to be together with them. i will lay out for you what the other events are at the end of the session. but let the let me introduce the folks that are here with me at the table. first on the far left, so to speak, it is such a stock joke, i'm sorry. [laughter] on the far left is a resident scholar who specializes in japan. he does a lot of work on the

pacific and air power as well. next to him is fred kagan, the christopher gibson chair and tom donnelly, the codirector of the maryland where center for security studies. we are going to try to have a discussion with these microphones from the 1970s. we will try to make a little bit more lively for you. it will keep you and us awake. we will talk about issues that are facing us in national security and we will stop about half hour early and open things up to westerns from everybody. because we don't just have a hill audience today, but also an audience on the outside, we are going to talk more about the issues that i suspect are very

familiar to all of you. sequestration and things we can refer to in one word. i'm going to ask my colleagues to be a little bit more forthcoming in describing them to so that we can have a complete discussion with the rest of the world on video. in any case, we have the state state of the union address coming up soon. i suspect that much like the inaugural address of president obama gave, it's going to be pretty light on national security. national security, it turns out is not a big priority right now. we are nationbuilding here at home. something but not as candidate obama, but also candidate romney agreed upon. we are looking at unprecedented cuts and spending on national security. we are looking at the prospects of drawing down from afghanistan

one of the questions that i know that we have is whether we are ready for those changes. i suspect that most of us believe that we are not. tom, maybe you can talk about the sequestration of paul ryan told us is going to happen. >> there has been a near certainty so i will talk about the sequestration per se. i really regarded as a symptom and not the disease itself. the disease itself is the erosion to the point of vanishing, almost. the bipartisan political consensus for military strength,

as people used to say. that is something that over the course of my career has been a touchstone. something that people could build upon. we can argue about what kind of strength we could have come of these for forces versus those forces. but there was a broad-based bipartisan condition of the american military power was necessary and necessary conditions in a dangerous world. that was a good thing. so i think that both of those underlying pieces of political consensus has evaporated. let's talk about sequestration mr. ryan has acknowledged what i would say the cards from the

start. that there is going to be yet another round of defense cuts. this year, about $55 billion will be sequestered in ways that you need to the department. it's not that this is just automatic across-the-board meat cleaver approach. but there was some wiggle room granted to the president and particularly he has chosen personal benefits. so the cuts that have to be made, coming as they will come, about halfway through the budget year will fall disproportionately on the weapons procurement and research , in particular on the maintenance accounts that make trained and ready units for deployment. and because this set of accounts also includes things it means

that it will fall on these rapid spending accounts that are most directly associated with making units ready to deploy the combat fields. now, i am sure that the department was intact last week and the chairman said we have a set of managed cuts. we are managing them so that noncritical counts will be protected. well, sometimes there is not much that isn't pretty critical. ammunition and gasoline, for instance, to do training went. paying the contractors who run the rangers.

so on and so forth. so the idea that this is going to have a pretty quick effect on combat effectiveness of guys and gals who are going into harms way. it is possible that a budget deal or even more likely that the presidents 2014 budget will chart a course forward by the defense department and sequestration level spending becomes the feeling and not the floor. the president, again, we have no clear thinking outside of what he has revealed in his inaugural speech. but he is not a guy that is tired.

this is not much aware that the united states should get involved in. therefore, we can afford to reduce military spending and military power investment. we have invested elsewhere. not so much cut the deficit, but use the money saved for his priorities. his domestic priorities. >> [inaudible question] >> okay, this is the problem with us having free microphones. i would like to push you on the question and segue to talk about the wars that we theoretically could fight. part of the problem is the notion that we don't have a war that we want to fight. now, that is, in some ways, an unacceptable notion. the commander in chief gets to make those decisions. the american people voted him into office again and in some

ways, the president has his mandate in these areas. the real question is the impact that the united states is in. for most of history we don't talk about this very much. we have maintained a strong military, not so that we can fight, but so that we cannot fight. the other point that i think that tom made, and this is how i want to segue, it is to understand what it is that is involved in the military operation. we just finished a very important piece of work. a shorter piece and an interactive piece. it will explain just what it is that we can do. it makes critical decisions in regards to afghanistan and it's not just about bureaucrats in dc fighting a war. it is the big thing. would you like to talk about that and some of the surrounding decisions?

>> sure. if we become very accustomed to throwing numbers of troops around and people have gotten way too comfortable with pulling numbers out of the air, the effect of that is that very few americans actually understand that there is a method for figuring out how many troops are needed to accomplish something. when the recommendation comes from a military commander, it's not just as this white house seems to think, the commander asking for everything that he thinks he might possibly get as a negotiating tactic because he always wants more troops. it is, in fact, the result of a very complicated staff process. that can only be performed by a military staff. so when you hear numbers coming out of the white house, you should be asking yourself, which military staff needs to figure out how many troops are required? as an example, when the president talks about keeping

3000 troops in afghanistan. here is the problem. you cannot. you cannot keep it with only 3000 troops. because once you start looking at the concrete requirements on the ground in order for those troops to be safe and fed and have ammunition, in order for the basic functions of the military organization to be carried out, the troops need to get paid, forms need to be submitted. all kinds of things that you regard since the days of the cold war, we have regarded as superfluous or actually vital to keeping things working in the field. so when you start asking questions like how many troops would we need at a base in afghanistan, you quickly say what they. because it matters. so you look at this, which has a 10,000-foot runway, and you need to be able to have the ability

to load cargo. as my esteemed colleague refers this to somalia and yemen, he and many others seems to have forgotten the value of having this if you are trying to do logistics offshore. there is no offshore in afghanistan. so needs to be a 10,000-foot runway and someone needs to secure the perimeter around the 10,000-foot runway. that's a big task. we know what the threat is. the enemy groups have repeatedly attacked our bases with multiple truck bombs followed by infantry supported by rpg's and mortars and rockets. that is a standard practice and we know something about what kind of defense of perimeter is required and we can count that out. other things that people don't track on, do you want american soldiers to have medical care or not? what is the attrition rate that the president is willing to

accept among wounded soldiers in the area that he has sent them? if you want soldiers to survive these entries if they encounter, you need to have a medical clinic. if you have only one base, it must be at that base. it is 200 people in a medical clinic. here is another fact. we are going to do this all with drones and the great thing about drones is that they are unmanned aerial systems. i quote the united states air force on the subject of what a misnomer it is to call them unmanned aerial systems. the only thing that is unmanned is this. you have ground crews because, guess what? they need to be fueled and repaired and they need to be armed and you need to have about 15 people on the ground for every creditor, every for predators that you want to have.

when you put 50,000 troops in this theater, which is one of the reasons why no one has heard of these kinds of discussions. i want to have a cap of 3000 troops in the middle of the hindu area, then you have to start getting into these conversations and it quickly becomes apparent that even if by maximum use of contractors or local security forces, if we like and then to benghazi, we could maybe keep 3000 troops there and it would be to clone a phrase, a self licking ice cream cone. it would be able to accomplish nothing other than to defend itself. because we get rapidly over 3000 troops requirement before we even start talking about the troops required with any punitive enemy. this is one of the reasons why it's a good idea in general terms to let professional military staff go through a technical analysis and figure

out exactly what kinds of troops are needed to accomplish a particular mission. it would be very helpful if the president of the united states ordering troops into combat would take seriously the kinds of assessments that he receives from the people who know how to do this. >> i would like to bring it back to tom. fred, you also have an answer to this as well. the debate that we see going on over afghanistan -- it's not just a debate about afghanistan. it's not just a debate about the wisdom of staying there. it is about the nature of the fight as we move forward since 9/11 in the battle against al qaeda and related movements. that is the battle that is taking place. i'm about to say something i swore i never would, but the new paradigm is -- it is special

forces. but that we can do things by remote control and with what i like to refer to as a lot of guys with suitcases full of cash. they can make all that magic happen and then we really don't need the men and women that fred is talking about. interestingly enough, in the last week we have seen to budget announcements coming out of the pentagon. one i was looking up now because i wanted to remember the numbers, and that was that the pentagon is beefing up cybersecurity forces, taking it from 900 to 4000 and putting a few billion dollars into it. the other one that is being beefed up in these times of budgetary constraints are the special forces. tom, would you talk about that generally? if you would talk about that in a broad nature and then we will come over to the nonexistent challenge that faces in asia.

>> i will try to be brief. these are certainly needed and are believed to exploit, you know, this is pretty critical. but it is not qualitatively different from other forms of intelligence gathering or attempts by propaganda or by the military were a strategic situation. the special operations forces, to some degree in, is understandable. but as fred alluded to, we must

direct action to magically appear and sustain themselves. if you have seen "zero dark thirty", it's a great picture of how the intelligence went and then the heroine appears at this brown looking base in afghanistan and all these guys start walking out of this. how do they get their? you know, who fed them? to put fuel in their helicopters. the idea that magically they are up on the age, it is quite ludicrous. these are amazing capabilities that we have. but if they are not nested in conventional force, which do a

lot to create the conditions under which these forces arafat, even when counterterrorism forces are as effective as ours are and what they can be, that is not enough. that is not enough to procure the outcome that we want. even if we can continue to suppress magically the al qaeda leadership in the high-value individuals in the pakistani tribal areas, there is a lot more with guys like that in other places around the world. the larger political situation in the region is not going to get any better. so we can treat the symptoms, possibly, you know, at great expense. but we are not going to cure the underlying disease. every time that we kill a bad guy, it will grow to. >> i think it's interesting to

look back over the last four years outside of iraq and afghanistan since we pulled out our last forces in 2011. where the administration has been experimenting with special forces in places like yemen and somalia and libya and iraq. we are not even doing that. in syria we are not doing that. dudes with beards and suitcases with money -- you know, it has been a huge problem because they have been supporting them in one thing we don't like to do is put boots on the ground and that is the something that we haven't yet figured out how to keep the boots off the ground. so this is a problem. when you say no boots on the

ground releasing a special forces either. you're saying you're going to vaporize a number of enemies. last four years under this administration, we have seen the single most erratic expansion in the areas of the world under the control of al qaeda affiliates in history. we are putting ourselves now on progress and we think that we have made in yemen, which is based upon tenuous local accommodation that actually, it is unraveling, this is the thing that we have very closely and if you look and somalia, yes, the local countries which are now themselves under terrorist attack, such as kenya, it has made significant progress against also bought. the notion that this is in the offing that will put an end to what has been a long great knack of chaos that has allowed these groups in various forms to persist is questionable. i am willing to predict that the

french rate, you know, brave as it is and as much as i like seeing the french go and kill violent islamist, is unlikely to produce any kind of stable resolution there. in the meantime, we have seen a flocking of certain international terrorist into mali. the way that we lead behind in libya and the international coalition is taking steps to help set up a government, let alone securing the enormous arms to those that were there. and al qaeda has infiltrated us. they have infiltrated that into egypt and i'm here to tell you that over the weekend the al qaeda affiliate in iraq, the islamic state of iraq, openly announced that it was conducting counter offensive operations

after being killed and has took off a rocky army troops. >> here is the 64,000-dollar problem. the big problem for most american is they look at, okay, afghanistan, that's one thing. maybe iraq. but mali and yemen -- to quote those who adore criticizing these kinds of operations, it would appear that all we ever talk about is this thing. i think that one of the failings is making a connection between our interests and what happens in these countries. because we often speak of them as if somehow, you know, there is an absolute. where the vast mass of americans

don't care what is going on there. the same thing with iraq. so can you quickly talk about this before we turn to asia? >> yes, it takes one to make war. we can say that we think war is receding and we can persuade ourselves, but then we have a problem. all of the groups that we have identified not only share common ideology that is focused on attacking us and in our homes, but almost all of them have made attempts to attack us and our homeland and will continue to make attempts to attack us in our homeland. i'm not suggesting there is an easy solution that i want to invade any of these countries. but what i am suggesting is that relying on offshore balancing, drones, and limited special enforcement operations has failed. so we need to find another

solution and we need to take it seriously. >> really quickly, at this point, there is almost more problems than we can deal with. but the problems that are arising that are coming to the floor now in syria and in egypt, those are traditional power centers of the mediterranean and most of the world. these are countries that are developed in the other nations in europe have interests were the saudi's and others have interests and are unlikely to do the right thing. so the idea that sure, afghanistan we think of in this way. africa is on the other dark side

of the moon. but damascus is not. cairo is not. baghdad is not. >> we think the world is made up slowly of al qaeda in the islamic world. i wonder if you just talk a little bit about what we see in the pacific, not just about china, but about some of the inner asian problems that we are seeing. and if you can, doing what our comments today are talking about, linking it back to some of the economic questions that we face in the prosperity that we have gotten used to up to a point. >> well, first of all, we know how asia feels in this discussion. when attention comes, it is very quick and it's get it over with as soon as you can. >> this is why you grow a beard. [laughter] >> let me mention three things. three things that will be on the

radar we should be aware of here in washington dc. then we can actually get back to the broader discussion. so if tom was talking about the media game, asia sees itself as a long-term game. they view what is going on here in those terms. it's not something -- they don't think it's going to be resolved tomorrow. whether it's not just china, it's japan and india, at southeast asia looking over long-term to understand what the correlation and balance of power is going to become. so part of the frustration is such an immediate focus. we understand why that is important. but the concern is that we don't have that same analytical ability to think out as long as

they do and start looking at how this will look in 2020 or 2025. regardless of some of the products that you see. i think the most part, the asians flipped through it with interest, but they don't take very seriously. so what are the three things that we should pay attention to that are a little bit more of them immediate concern? versus north korea. the second is the china and japan's bad and then managing the overall relationship with china and forward presence. we seem to be going back into the same dance where we just assume that we will be adding some sort of outrageous action, be it a missile launch or a nuclear explosion, some type of plea will be made to come back to the six party talks. well, i think what has changed a little bit is the rhetoric that you see coming out of north korea seems to be so much sharper. it's not that they haven't called us the enemy of the korean people before.

but it's becoming very much directed at the united states. if i were in the minds of the north koreans, i would be more confident to do that. we are seeing success on the front that they want to have success in. it means that they are now moving along the road where they can think about targeting at least parts of american territory. getting more expertise and ultimately moving down the road to weaponizing and put an on the successful missiles. we know of their close connections with the iranians and who they sell these missiles to. this is hard to overestimate how jumpy this makes the rest of the neighborhood. and i think that there is a sense of frustration that washington doesn't take as dursley. each time north korea does something, and to be honest, whether it's for republican or democratic, we are moving the redline farther down. there are no more in which the asians believe that we have with regard to north korea.

moving on from that, i think you will certainly see something happen and you'll probably see it happen soon. any question i would raise is are we prepared for the day when our allies decide they can no longer wait. south koreans have made that clear. the japanese with the a new administration and capabilities are making it clear as well. the second is between china and japan, a group of islands between the northeast corner of taiwan. they sit on the rich oil and gas deposits and they form the bottom of a strategically important chain of islands that can be used to basically bought the chinese navy from moving into the western pacific from the east china sea. they have been a source of daily confrontations on the sea and in the air between japan and china. you have to administration, one in china, one in japan. there is a hardening of positions on both sides, there is the usual diplomatic feeling, but i haven't talked to anyone who takes a particularly seriously. and we are one ep three away

from potentially a major conflict between japan and china. i think there will be a war? now. on the other hand, the tension the domestic tensions in both countries would not be very easy to solve. either before conflict or after conflict, it is going to lose an enormous amount of credibility and influence in the region. both sides know that, and that is why they are now moving or word to getting much closer to war. the third thing is managing the broader relationship. so i will wrap up my comments here. despite the missteps of china over the last couple of months, it was revealed to be an iron fist in a velvet glove. the territorial disputes it has in the south china sea and east china sea, it means that china

has not significantly precalculated strategic interest. and i think the easy this that they look very carefully and my colleagues have been talking about that they firmly believe it is something that america is doing to impoverish themselves. they believe it is more and more dysfunctional. this goes right to the core of what tom was talking about the asians can count as well as we can. [laughter] they know what the numbers are they understand that we cannot go anywhere without people talking about this. they know when they are watching, that there is a fundamental reality of how many resources you have, and the size of the region that they are and.

the first steps that the air force is taking in the looming threat of sequestration. it goes right to the core of this concept of readiness. a senior air force official told me that he is expecting when he gets into the may and june timeframe that he will go down to about 40% combat mission capabilities of his forces, which have been engaged for a decade now. the other 60% will just go to the basic mission ready combat capable. the asians know that naca. our friends and those that are not our friends understand that regardless of what is that, if you look 10 years down the line, the possibility or the likelihood of america having the same presence in the region as it does today is a shrinking likelihood. >> to let me push back at you with the theory here. this is increasingly popular as

a construct for american national security. it is this notion that somehow we can pull back and look inwards when we need to. and yes, we can leak out what we are ardently called upon. but when were not urgently called upon. for example, when it isn't a war between japan and china, we can really allow china to manage their own neighborhoods and we can subcontract to regional power. the management of these own areas. russia, eastern europe, china, asia. i think people are thinking what the implications are. our asian allies have not failed us. >> absolutely. one problem is the political problem and the other is the practical. everything that you said is absolutely right. and that falls in this period of

political. you have to have skin in the game. but if you are not there presently, the asians extraordinarily question why you're going to come in when the stakes are getting higher. and they don't even need to think out to the existential question. just hoping for the good old days when things were clear. you know, does the nuclear umbrella still hold. for them, the credibility is the present. and as you point out, we havarti been doing offshore balance, we had the filipinos, our allies, they have come to us in these disputes and said, are you backing us up and what you doing? in administrations response has been we take no position on sovereignty issues and we want to see the status quo maintained. now, ironically, that is the right position. it's not for us to defend japan's territory, but how the

balance of power in the region is changing. we are changing the actions of our allies in each of these territorial disputes. they have come out on top. the one that is playing out right now is the most dangerous of them all. the second part of why offshore balancing is problematic is what fred and tom was talking about. if you do offshore balance, if you start pulling back and go to hawaii and other places that can be edited from that are cheaper, it is extraordinarily expensive. you have to fight back in. and you have to go back in. that means bringing those faces up to par and getting your logistics training going. as you point out, we don't think that what it takes innocent mormons time from san diego to the mako straight, if we come out, the cost of going back in. our friends know immediately.

even when you have been there for six years, how many times do you see a great hole? not that much. it's thousands of thousands upon miles of water space. >> there's another thing you'll probably notice about that we didn't bring up. it says something that didn't come up first and foremost. we didn't say anything about iran. i have noticed because i think that it is increasingly true here in washington. is it because we had aided the iranian nuclear weapons program? is it because our effort at dialogue has borne fruit? is it because iranian government the iranian government has had second thoughts? is it because the europeans and their ongoing dialogue with the iranian government about the nuclear program has been successful? or is it none of the above? the biggest problem is there as

an incredible blossoming around the world and we have a lot to talk about before we can even consider our government, and i would say many on the right and the left are bored with iran. the tacit notion is that the containment is a very good option. because of this is the year in which iran will get nuclear weapons. for those of you who have a slightly longer memory than some, your number one in him and netanyahu stood up in front of the general assembly with that cartoon that he ill advisedly drew or have someone draw for him. he said that the deadline that they saw was the summer. both fred and tom have written on this. i wonder if you too would like to put a word in.

>> i would like to throw in a concept that i think is very important to understand. we have decided that whatever we all agree upon is being what's happening in the world is what's happening in the world learned we are not very interested in the intrusions of reality that come periodically, but in a limited way or media about these things. we have sort of agreed that the diplomatic thing is possibly going to work. so that is the reality that we are going to. the reality that the iranians are going with us that they will almost certainly have are the ability to detonate a nuclear device this year. they will definitely have the capability to produce the uranium by almost any estimate you want and should be far enough along in a weapons program to be able to do that. they are a lot farther along in the weapons program and most of

the consensus reality estimates that are periodically leaked by unknown officials. you should also be aware of something else, which is what the estimate of when they will have acquired the ability to launch an intercontinental blistered missile has not varied over the past two years to it has remained constant until about 2015. fortunately, that so far into the distant future that we really don't need to be concerned about it. but the bottom line is that when you look at, as we do on a regular basis when we look at the technical recordings, we have international energy inspectors in the ground in iran every few weeks looking at the instruments and reporting out exactly how much of what kind of uranium they have been exactly what organization facilities do they think they have that they haven't been allowed to inspect. the iranians will very likely acquire the capability to have a nuclear weapon and within a year

after that, the ability to put it on a missile. that is reality. whatever we might talk ourselves into believing. >> there's least one american who thinks about iran 24/7. possibly the head of central command. while he is in command, you know, arguably he is letting other parts of this area of operations beat the bill payers for that. when we look at it from the position of the united states navy, it's off the persian gulf. that is where the navy is today. we've a high-end part of the navy. so it's not hard of this. we are happy to look the other way. but it shows you that with a limited, overall size today and

the limited amount of military resources that we have, we are not doing any of the right things that perhaps we should be doing or wish we could be able to do across the greater middle east. neither are we pivoting in this way. we only have a single chip to play of the iranian danger, which actually rises to the top in many ways. >> it's interesting to me that senator john kerry as prepared his statement and underscored very aggressively the notion that the president did not want a containment option for iran, but he in fact wanted to see the program and it's interesting because there is nothing in our policy, of course that

undertones that statement. so the little bit of a disconnect from reality. before we open up the question, i want to just touch upon two questions quickly. maybe actually three questions quickly. but the first is what we learned from the nominations we have seen in the national security sphere. senator kerry has benefited enormously by being the least of the controversial candidate that had been nominated and it is very likely his nomination will go through the senate with the greatest of ease. senator hagel has hearings beginning next week and he has perhaps been the most controversial. we would all be paying attention to the nominee to be the director of control and intelligence and who has himself a history of some controversy on

both the left and the right. so we could just talk about what the implications of this are and i want to type with these two questions together. many of us who work in foreign policy are drawn in. in the old days, this is not as embraced as it is now. for those of us who didn't study history, a lot of us remember that all of these inconsequential and rather uninteresting country is, whether it was czechoslovakia of the time or the molly of the time, they were the precursors to larger battles that could have been dealt with had they been dealt with early. i wonder thinking through that where we see things going and underscored the throat open and see who grabs at first.

>> okay. well, let's just compare senator kerry and senator hagel to senator hillary clinton and bob gates. by that standard, both of the nominees -- they are not independent thinkers and they have no track record either legislating in the intellectual sense or advancing important ideas or on international politics. but the underlying cause is the president's lack of interest in these issues. >> yes, i have another part of this discussion. the republican party is now focused on trying to be responsible about what kind of physical environments we leave to our children and grandchildren. which i think is good in general

terms. so we are very worried about the deficit. and also what kind of deficit will we will be leaving to our heirs. there is a national security deficit that is growing and that will continue to grow. it is a particularly american conceit of the world goes away or stops when we stop paying attention to it. the fact of the matter is that the problems that we see in the world will not go away or if we don't cost them by looking at them and we can't stop them by ignoring them. the enemies who want to kill us, and it's amazing to me how comfortably we forget the fact that there are large groups, including the entire state of iran, where leaders wake up every day and ask themselves what can i do to kill americans today. that is not eight. of war receding. we will leave for our children and incredibly dangerous world.

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